A Dynamic ETF Strategy That Can Ride Out Both Bull and Bear Markets

A quantitative exchange traded fund strategy that seeks to produce ASYMmetric returns could help investors capture gains in both bull and bear markets.

In the recent webcast, A Precipitous Pullback? How to Prepare Your Portfolio, Darren Schuringa, CEO of ASYMmetric ETFs, warned of increasing risks that investors face today. Investors who have traditionally relied on fixed income assets to mitigate equity risk are now faced with a rising interest rate outlook. Meanwhile, equity market risks are on the rise as we continue to push toward record highs.

As an alternative to help a traditional portfolio hedge in these challenging times, Schuringa highlighted ASYMmetric ETFs’ PriceVol methodology. PriceVol is a proprietary measure of market risk developed by ASYMmetric. It is engineered to provide what ASYMmetric believes to be a more accurate measure of market volatility. PriceVol measures realized volatility, calculates dispersion, captures the price movement of 100% of market constituents, and quantifies investor sentiment.

Investors can turn to the ASYMshares ASYMmetric 500 ETF (ASPY), a passively managed, rules-based alternative strategy for hedging U.S. large-cap equities. The fund tries to generate asymmetric returns, or what ASYMmetric ETFs defines as the ability to make money in down markets and capture the majority of bull market returns. It is a third alternative to stock and bonds.

“ASPY is a disruptive risk management tool which may reduce the risk and improve the performance of your existing stock and bond portfolio,” Schuringa said. “ASYMmetric’s suite of dynamically hedged ETFs is opening new frontiers in portfolio risk management — asymmetric returns.”

ASPY is designed to make money in bear markets, seeks to generate positive returns across all market cycles, and is engineered to provide uncorrelated returns.

ASYMmetric ETFs uses a rules-based, quantitative long/short hedging strategy that seeks to provide protection against bear market losses without sacrificing equity returns.

“Our strategy is powered by ASYMmetric Risk Management Technology — institutionally-vetted intellectual property that helped power one of the largest hedge fund seeds of 2015,” Schuringa said.

ASPY is designed to provide investors with a less volatile way to gain equity exposure. The strategy is designed to potentially lower the risk and improve the performance of a traditional stock and bond portfolio. The 60/40 stock and bond portfolio is arguably broken. Bonds come with very little income and have the risk of losing money in a rising interest rate environment.

Adding more equity exposure isn’t the answer either, as it increases the risk of losses in a portfolio. ASPY is designed to provide consistent returns across bear and bull markets. It is also designed to avoid catastrophic losses and, in fact, seeks to make money in down markets. ASYMmetric has the potential to provide investors with a new path to wealth creation that is uncorrelated to both stocks and bonds.

The fund targets between -25% and 75% net long equity exposure based on market risk. ASYMmetric Risk Management Technology uses proprietary price-based algorithms to dynamically manage net exposure in three market risk environments. When the markets are risk-on, the ETF captures the majority of the upside of the market in a bull market by being net long. When risk is elevated, it can protect capital by paring back net exposure during periods of heightened market uncertainty by being market neutral. Lastly, when markets are risk-off, ASPY tries to profit in bear markets by being net short.

Financial advisors who are interested in learning more about investment strategies to better manage market risks can watch the webcast here on demand.